COT Report: speculators bought crude and gold; euro shorts reach 4-year peak

Key points:

• The commodities sector has kicked off the week on a firm footing, led by gains in energy and industrial metals, as markets responded to developments in Syria, a strategic pivot in China, and incoming rate cuts in the next two weeks.
• Our weekly Commitment of Traders update highlights futures positions and changes made by hedge funds across forex and commodities during the week to last Tuesday, 3 December 2024.
• Speculators held the biggest IMM euro short since March 2020. A three-week buying spree flipped JPY back to a net long position.
• In commodities, speculative demand for Brent, gold, soybeans, sugar, and livestock was offset by selling of natural gas, diesel, wheat, coffee, and cocoa.

Broad Monday gains with focus on Syria regime collapse and China stimulus 

The commodities sector kicked off the week on a firm footing, driven by gains across the board — particularly in energy and industrial metals — as markets responded to a flurry of impactful developments.

Foremost among these, the sudden collapse of the regime in Syria has ratcheted up geopolitical tension, reviving anxieties about regional stability. The specter of a political vacuum in Syria evokes painful memories of post-revolution Libya and Iraq, where the ousting of entrenched leaders plunged both nations into deeper chaos. The market’s knee-jerk reaction reflects a blend of caution and unease, with fears that a similar fate for Syria could impact global security.

However, the most important news supporting the markets came from China. The 24-member Politburo, helmed by President Xi Jinping, announced a strategic pivot toward a "moderately loose" monetary policy for 2025 — the first such shift since 2011. This recalibration signals a renewed commitment to bolstering consumer confidence while shoring up the beleaguered property and stock markets. Despite a slew of stimulus packages rolled out since September, China’s recovery has been met with skepticism, especially as looming U.S. tariffs threaten to dent export-driven demand. For now, traders’ optimism for industrial metals hinges less on rhetoric and more on tangible policy actions. With this in mind, all eyes are on the Central Economic Work Conference kicking off Wednesday, where concrete measures could ignite fresh momentum.

Adding another layer of anticipation, the coming fortnight will see nine major central banks convene to chart the course for monetary policy. Markets are bracing for rate cuts from at least four of these institutions — with the Federal Reserve at the forefront. The Bank of Canada, European Central Bank, and Swiss National Bank are also widely expected to ease policy.

Forex:

In forex, speculators responded to a softer USD during the reporting week by making a small reduction in overall dollar long versus eight IMM currency futures. The 2% reduction to USD 22.5 billion, however, was very uneven, as continued selling of EUR, CHF, GBP, CAD, and AUD was more than offset by demand for JPY, where 25k contracts of net buying flipped the net position back to a small long. Other developments of note were an increase in the EUR net short to 57.5k contracts, or USD 7.6 billion equivalent, the biggest since March 2020.